Compliance
No Need For UK To Ban IFAs' Commissions - SEI
SEI Investments, the US-based group, welcomed the broad principles of the UK regulator’s proposed shakeup of the financial advisory industry but warned that it would be unwise to ban the practice of charging commission payments.
The Retail Distribution Review, a programme of reforms by the Financial Services Authority, the UK regulator, is designed to raise the quality of financial advice and make practitioners more objective by changing how they are paid.
The FSA has proposed banning commission payments, a move that SEI said is too harsh and unnecessary.
"We fully support the FSA's drive for transparency and separation of product from advisory fee in the RDR and we agree with the need for more professional fee based advice. However, we do not believe that there should be an outright ban on commission,” said Joseph Ujobai, managing director SEI Investments (Europe).
“Whilst we agree to the removal of product/trail commission fees, we believe they should be removed only where they unduly influence the advisor from acting or offering advice in their client's best interest. This is because a complete ban of such fees may be counter-productive given some of the benefits to the consumer in paying trail commission fees to their advisor,” he continued.
He said any separation and transparency of advisor and product fee should not necessarily be focused on pricing schedules but focused on other evidence and practice of a firm's delivery of unbiased advice.
In the FSA’s proposals issued in its consultation report in June this year, the regulator said: “The rules that we are consulting on require advisor firms to be paid by advisor charges: the rules do not allow advisor firms to receive commissions offered by product providers, even if they intend to rebate these payments to the consumer.
“This is a deliberate decision, as we do not believe that the potential for product provider commission to bias advice, or to undermine trust, can be properly dealt with while product providers continue to set commissions receivable by advisor firms.”
